<THE FOOLISH FOUR>
by Robert Sheard
LEXINGTON, KY. (July 23, 1998) -- The Dow dropped about 200 points today. It dropped the day before that, and the day before and the day before. So we should panic, right?
I heard enough tea-leaf readings about lost leadership, advance-decline lines, and various other "technical" measures today to make me want to jump off the nearest tall building if any of that stuff mattered to the long-term investor. But dang it, it just doesn't. So the market's down four days in a row. So it's lost about 400 points this week.
What does that really amount to? About 4.5% from a new all-time high last week. Now, I'm the last one to tell you what'll happen tomorrow, but thank goodness the Cubs were on television this afternoon to spare me from more inane over-analysis of a minor move for the markets. (Whew. Had to get that off my chest.)
A lot of news was brushed under the carpet today in the market sell-off. Boeing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %>, Sears <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %>, Chevron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHV)") else Response.Write("(NYSE: CHV)") end if %>, Minnesota Mining <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>, and AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> all reported earnings today. With the exception of Boeing, which missed its estimate by seven cents a share, the other four companies all exceeded analyst predictions. Yet it didn't matter. Except in AT&T's case, where the stock actually gained 1.5%, everything else was hammered, losing from 3% to 13% on the day. So much for earnings announcements directing the day's action. It's the spin on the earnings that really counts. Uh huh.
Let's face it, days like today aren't much fun if you're long the market, but the worst thing a long-term investor can do is start to get nervous and head out the door. Whether it's true empirically or not, it always seems that the market's losing streaks are more abrupt and painful than are the enjoyable periods of rising levels. But the long-term investor has time and historical evidence on his or her side. The market goes up more than 70% of the time, so one has to ride out that other 30% of the time to make good long-term profits. It's a lower-case "f" fool's delusion to believe you can predict when those corrections will occur.
On days like today, head to the driving range, or the baseball field, or the bookstore (I hear some guy named Sheard has a book out), and forget about the stock market. We're not even half way to a real correction (10% or more), if that's where we're heading. Looking too closely might push you into an emotional decision to cut and run. If your luck is like mine, that would be the day the market bottoms out and starts to recover. Don't trust your portfolio to luck.
Current Dow Order | 1998 Dow Returns
[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]
07/23/98 Close
Stock Change Last -------------------- UK - 3/16 49.63 IP -1 3/8 44.00 MO + 3/16 41.81 EK -3 85.00 |
Day Month Year
FOOL-4 -1.76% 4.91% 13.92%
DJIA -2.15% -0.21% 12.96%
S&P 500 -2.09% 0.52% 17.45%
NASDAQ -1.75% 2.14% 23.23%
Rec'd # Security In At Now Change
12/31/97 206 Eastman Ko 60.56 85.00 40.35%
12/31/97 291 Union Carb 42.94 49.63 15.57%
12/31/97 289 Int'l Pape 43.13 44.00 2.03%
12/31/97 276 Philip Mor 45.25 41.81 -7.60%
Rec'd # Security In At Value Change
12/31/97 206 Eastman Ko 12475.88 17510.00 $5034.13
12/31/97 291 Union Carb 12494.81 14440.88 $1946.06
12/31/97 289 Int'l Pape 12463.13 12716.00 $252.88
12/31/97 276 Philip Mor 12489.00 11540.25 -$948.75
CASH $754.73
TOTAL $56961.86
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